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In Mask Off, we discussed the reduction in work hours being the equivalent to 305 M jobs, or a loss of 10.7%. This was based off an older report that has now been updated: 400 M jobs lost, or 14%. It is 18.3% in "the Americas." https://twitter.com/Ridhimaniac/status/1278396734897565697
The new report notes the increase in informal work - as many without work cannot get unemployment insurance, they turn to grey and black markets or under the table gigs.
The report indicates three scenarios for employment, the most pessimistic of which projects ends the year with 11.9% loss in work hours. This scenario is based off a model of GDP growth decline developed by the OECD. https://www.oecd.org/economic-outlook/june-2020/
This report in turn calculates GDP growth assuming a "double-hit" scenario, in which there is a second wave of pandemic. Since they have no data for the severity of this second wave, they make epidemiologically dubious assumptions about herd immunity and project that it
will be less severe than the first. They therefore treat it as a fixed (arbitrary) ratio of the peak of the first wave. But all signs indicate that, in the US at least, we have yet to even reach this peak.
So far today over 43,000 new cases have been reported. https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/cases-in-us.html
A CDC director said that the spread is so rapid and broad that they "cannot control" it. https://www.cnbc.com/2020/06/29/cdc-says-us-has-way-too-much-virus-to-control-pandemic-as-cases-surge-across-country.html
Many states are rolling back their reopening timelines as the new surge brings us to higher death and hospitalization rates than the previous peak in late May. The EU banned travel from the US.
We are still in the first wave and we have no idea really how bad it will get. COVID-19 is more infectious (R is above 1 again, which means exponential spread), but mutates at a lower rate and so far has not shown susceptibility to seasonal climate changes.
This means that it's dynamics are fundamentally different than previous epidemics, and therefore hard to make predictions about. The entire "wave" model of epidemics is based on the 1918 Spanish flu, from which COVID-19 has already shown markedly different behavior.
The wave structure of many other recent epidemics is inconclusive https://www.cebm.net/covid-19/covid-19-epidemic-waves/
In June, the Bureau of Labor Statistics released a report showing an increase of 2.5 M jobs - not enough to make up for April, but they triumphantly reported that we had reached the bottom of the trough. However, 2.425 M of these were in services, 1.3 M in food service.
These are of course the exact industries targeted by shelter orders. I haven't seen any study yet of the relationship between the current surge and this recent "return to work" for service workers, but I imagine they are highly correlated. Effectively, any recovery
is in opposition to what is epidemiologically necessary - which we already knew of course. But "recovery" now will basically push us into ILO's pessimism scenario, probably at a worse rate they said - that scenario depended upon a "cooling period" in Q3 and a more slight
surge in Q4. We are not going to have this cooling period and what happens in Q4 is anyone's guess. Furthermore, while the OECD predicts -8.4% GDP growth for the US, the Congressional Budget Office projects -11%. https://www.cbo.gov/publication/56368
But none of these predictions mean anything, since they all assume a shape to the infection curve that we are already seeing is not the case. Finally, "recovery" is predicated on resumption of the same activity at the same volume. But many of these jobs are not returning.
100,000 small businesses have already permanently shuttered. https://www.washingtonpost.com/business/2020/05/12/small-business-used-define-americas-economy-pandemic-could-end-that-forever/
Dozens of major companies have filed for bankruptcy https://www.forbes.com/sites/hanktucker/2020/05/03/coronavirus-bankruptcy-tracker-these-major-companies-are-failing-amid-the-shutdown/#bece82c3425a
Mergers and acquisitions have dropped off by 90%, leaving at least $2.5T in money-capital uninvested https://www.ft.com/content/92c13865-6c67-4f48-b96b-3429194c2ea2
This all indicates that, despite the extraordinary measures pulled by the Fed, from zero percent interest rates to direct asset purchasing, liquidity/credit is still very restricted. Their policy is to effectively purchase T-bonds in order to maintain a favorable bond yield curve
which they see as providing a bedrock to markets. This has in turn encouraged investors to go for "riskier" investments while shying away from anything that looks like an actual business. This has lead to the appearance of a "bull market" but little that will last.
"According to IMF staff models, the difference between
market prices and fundamental valuations is near
historic highs across most major advanced economy
equity and bond markets" https://www.imf.org/en/Publications/GFSR/Issues/2020/06/25/global-financial-stability-report-june-2020-update
market prices and fundamental valuations is near
historic highs across most major advanced economy
equity and bond markets" https://www.imf.org/en/Publications/GFSR/Issues/2020/06/25/global-financial-stability-report-june-2020-update
So there's lots of credit, but it's not floating investment into the "real economy" even with a rise in corporate debt, this is flowing into cash hoards, not business expansion (where would they expand into?) https://www.ft.com/content/36e2cca2-2987-45ba-8003-2a6b8bc4a378
One could argue that these cash hoards will allow them to weather the turbulence of 2020 and contribute to smooth growth in 2021. But this all depends on timing. As the Fed says âProspects for further substantial improvement in the labour market were seen as depending on a
sustained reopening of the economy, which in turn depended in large part on the efficacy of health measures taken to limit the effects of the coronavirus." But as we are seeing, even the worst models are likely to be made obsolete by reality! https://www.ft.com/content/54ab8c78-3abc-4321-8364-3ffd4686ecd4
